The region experienced decisive additions to oil and gas capacity in 2018, with soaring natural gas production in the Marcellus and Utica basins outpacing the infrastructure required to move it to market

The Permian is leading America's surging crude production, but there are warning signs in the data

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The wave of new American tight oil supply hitting the market continues to gather pace. Shale producers are expected to add another 125,000 barrels a day of output in May, bringing the total to just shy of 7m b/d, according to the latest figures from the Energy Information Administration.

This growth equals an addition of around 450,000 b/d in just the first five months of the year, so US shale producers are on track to crack 1m b/d of supply growth for the year.

The Permian, where activity is hitting frenzied levels, is leading the charge. The West Texas play is adding about 75,000 b/d of production per month following a supportive run up in the rig count, and in price action. The rig count hit 1,013 last week, up from 857 at this time last year, according to data collected by Baker Hughes, while WTI crude hit three-year highs of $69.50 a barrel. The Bakken and Eagle Ford shales also have modest amounts of new production, but America's tight oil industry continues to be dominated by the Permian.

While the Permian's surge looks sustainable through this year amid price confidence and corporate drilling programmes that are largely fixed in place, there are two interesting data points in the EIA's latest Drilling Productivity Report worth looking at.

Productivity anomaly

The first is a flat-lining in the Permian's new-well production per rig, a measure of productivity. For years, this figure gradually risen thanks to a combination of fracking improvements — longer laterals and bigger frack jobs — and a retreat to drilling only on the most productive acreage through the downturn. From the start of 2015 to the start of 2018, the figure more than tripled to 628 b/d of new production per well. But through the first part of this year, that number has actually slipped to 626 b/d.

The best-case for Permian drillers is that a move to pad drilling, in which multiple wells are drilled from a single rig - meaning fewer rigs are now needed - has distorted the measure and productivity improvements are still happening. Companies continue to tout improving results from bigger frack jobs at individual wells, but that doesn't mean it is happening across the basin.

The Permian continues to dominate US shale output

Many, including some top Permian players, think drillers are coming to the end of the runway for improving well efficiencies - at least the scale and pace of improvement seen in recent years. At some point, the economic gain that comes from higher production at the new bigger wells will be swamped by the added costs of drilling time and more sand, water and proppant — sand designed to keep an induced hydraulic fracture open.

"We're just about there," Pioneer Natural Resources' chief executive Tim Dove told investors at a conference this month in New York. "You can use a bigger and bigger sledgehammer, but eventually you're not going to be able to carry it because it's too heavy."

Well backlog

The other noteworthy figure in the EIA's data has been the rapid rise in drilled but uncompleted wells, so-called Ducs, in the Permian. The number of ducs in the Permian topped 3,000 in March for the first time and has been rising quickly, according to EIA data. It has jumped by more than 1,000 in the last nine months, creating a backlog of wells ready to hit the market. assuming around 630 b/d of production from a new well , then those 3,000-plus Ducs represent around 1.9m b/d of production potential.

However, there is little chance that the Duc backlog will be worked down anytime soon. Part of the reason the number of Ducs has risen is the move to pad drilling, so batches of three or more wells are being drilled before they are fracked. Some companies also say they are purposely maintaining an inventory of Ducs to remain flexible to respond to market changes.

Mostly, though, it is a sign of the shortage of manpower in the Permian. Companies are simply drilling wells faster than they can complete them. The rapid ramp up in drilling activity has created a severe shortage of frack crews in the Permian, creating bottlenecks. That is likely to continue as companies struggle to bring enough people into the Permian, which could act as a limiter for the Permian's growth.